Inside the Market’s roundup of some of today’s key analyst actions
In a research note titled “Growth comes at a cost,” RBC Dominion Securities analyst Josh Wolfson adjusted his earnings expectations for Kinross Gold Corp. (KGC-N, K-T) in response to its reintroduction of a dividend ahead of the Denver gold conference.
After the bell on Thursday, the Toronto-based miner declared a quarterly dividend of 3 US cents per share, which Mr. Wolfson noted represents 1.3-per-cent yield, in line with senior producers (which range from 1.0-1.5 per cent).
“At current spot gold prices we calculate dividends represent 10 per cent of FCF [free cash flow] through 2023, or 65 per cent at $1,300 per ounce,” he said.
At the same time, Kinross introduced three-year guidance, which includes expected production growth of 20 per cent to 2.9 million gold equivalent ounces (GEO) in 2023. However, capital spending is also expected to rise, exceeding the expectations of both Mr. Wolfson and the Street.
“Guidance outlines higher production, offset by higher capital spending,” the analyst said. “Overall, our FCF from 2021-23 has decreased by a marginal $25-million over this period.”
“Guidance in 2021/22/23 is now 2.4/2.7/2.9 million GEO, 3 per cent above our estimate over this period and 6% above the consensus. Continuous improvement programs have driven project upside and mine life extension; namely, Kupol exploration, Chirano mine life extension, Fort Knox enhancements from Gilmore production acceleration, Paracatu outperformance, and Bald Mountain north area production improvements. Costs were not specifically guided, although KGC noted costs of sales are expected to increase in 2021, ahead of declines guided in 2022/23, in line with our and consensus expectations. A budget price assumption of $1,200/oz has been utilized.”
With the release, Mr. Wolfson trimmed his 2021 earnings per share projection to 79 US cents from 81 US cents, while his 2022 estimate rose to 83 US cents from 77 US cents.
He kept an “outperform” rating and US$12 target for Kinross shares. The average target on the Street is US$11.18.
Meanwhile, BMO Nesbitt Burns analyst Jackie Przybylowski upgraded Kinross to “outperform” from “market perform” with a target of US$14.25, up from US$13.50.
“Kinross is demonstrating its discipline by maintaining a conservative gold price assumption, by transitioning to a lower capital investment phase, by bringing production costs down, by raising production, and by instating a dividend which is competitive versus peers and sustainable,” she said.
A pair of equity analysts on the Street raised their target prices for shares of Tesla Inc. (TSLA-Q) ahead of the electric vehicle maker’s much-anticipated “Battery Day” event on Tuesday.
Coinciding with its annual shareholder meeting, the presentation is expected to highlight its plan next steps in moving toward a more self-sufficient company with less reliance on external suppliers.
CEO Elon Musk has promised significant announcements on its planned improvements in battery technology
It will be very insane— Elon Musk (@elonmusk) September 17, 2020
Pointing to “robust and strong-than-expected demand” in China, Wedbush analyst Daniel Ives raised his target for Tesla shares to US$475 from US$380, keeping a “neutral” rating. The average on the Street is US$311.70.
“The pent-up demand in the China EV market for Model 3′s and recent price cuts are catalyzing strong unit deliveries for Musk & Co. in this key market with increased market share versus domestic competitors as the Giga 3 success story continues to play out” said Mr. Ives, who sees China increasing the company’s profitability profile in the coming years.
Calling its Energy segment “the topic everyone tries to avoid,” Piper Sandler analyst Alex Potter raised his target to US$515 from US$480 with an “overweight” rating (unchanged).
“We now expect Tesla Energy to eventually exceed $200-billion per year in revenue, with TSLA controlling over 1/3 of the market for stationary batteries,” he said. “We anticipate sharply higher demand for these products, particularly in the late 2020s and 2030s, as renewable energy grows toward 40 per cent of electricity generation,” says Potter.
RBC Dominion Securities’ Mark Mahaney thinks investors “under-appreciate the magnitude of the strategy behind, and the implications of, the dramatic buildout” in Amazon.com Inc.'s (AMZN-Q) logistics network.
The analyst thinks the network, which he calls AMZL, provides it with “major” service and cost advantages that “should shine through this Holiday Season and well beyond and helps creates a long-term opportunity for AMZN to become a leading 3P delivery service/carrier.”
“AMZN has disclosed that it is expanding its global distribution square footage 50 per cent this year,” he said. “Key context here is that this means Amazon is growing its network by 130 million square feet — that’s 3 times more than its network grew in 2019 and more than Amazon’s network has grown combined over the past three years. For extra WOW, over the last three years Amazon will have grown its U.S. distribution network
by 160 million square feet — about the same as Walmart’s distribution network growth over the last fifty years. And with this growth has come verticalization—AMZN will soon be handling delivery from desktop to doorstop for 85 per cent of all its packages, covering 70 per cent of U.S. households.”
Mr. Mahaney said his research showed the fastest growth element of Amazon’s distribution network is delivery stations, which are facilities closest to customers. They’ve growth by 17 times in the U.S. since 2015 to 423.
“What this means is that AMZN has brought its inventory (selection) and delivery capabilities (service) dramatically closer to the consumer,” said Mr. Mahaney.
Mr. Mahaney kept an “outperform” rating and US$3,800 target for Amazon shares. The average target on the Street is US$3,688.05.
Citing its current valuation and “sluggish fundamentals,” JPMorgan analyst Ken Goldman lowered Beyond Meat Inc. (BYND-Q) to “underweight” from “neutral,” seeing its 108-per-cent rally thus far in 2020 (versus a 4-per-cent gain in the S&P 500) as “above and beyond what we consider rational.”
“We believe Street estimates are a bit aggressive right now – especially with chief rival Impossible Foods making strong inroads into Beyond’s on-shelf presence, and with many restaurants not adding menu items,” he said.
Continuing to see Beyond’s long-term growth opportunity as excellent and seeing the company as well-managed with strong innovation and marketing plans, Mr. Goldman maintained a US$122 target for its shares. The average is currently US$123.74.
“We’re increasingly concerned that the market is becoming too lax toward chances of a post-Covid-19 sales growth downshift at HD/LOW and potential impact on shares,” he said.
Mr. Nagel’s target for Home Depot slid to US$305 from US$320. The average on the Street is US$302.71.
His target for Lowe’s fell to US$180 from US$185, versus the US$181.50 consensus.
In other analyst actions:
CIBC World Markets analyst Scott Fromson raised Winpak Ltd. (WPK-T) to “outperformer” from “neutral” with a $52 target, up from $45. The average is $49.
“We hosted Winpak CEO Olivier Muggli and CFO Larry Warelis for a virtual fireside chat at CIBC’s Eastern Investor Conference; we also reached out to management for further detail on capital deployment,” he said. The session reinforced our belief that Winpak’s expertise in product R&D, materials engineering and production technology forms the basis of its product leadership. Further, COVID-19 has not had a major impact and Winpak is forging forward on sustainability initiatives. Finally, Winpak can bolster growth using its cash hoard. These factors support our belief in the durability of Winpak’s EBITDA margins on the high end of the industry (21-23 per cent versus average 15-16 per cent)."